Former union boss gets $700,000 for lost pension

Judge says the payout wasn't legally necessary

The San Diego city retirement board has awarded a $700,000 settlement to former labor leader Judie Italiano despite a judge’s ruling that she isn’t owed anything beyond her $5,700-a-year pension.

The settlement was approved by Superior Court Judge Joel Pressman because he had no choice once the parties agreed. He expressed concerns, however, that it was “clearly not legally necessary” given his previous decision against Italiano. The City Attorney’s Office also argued the deal wasn’t reached in good faith.

Italiano, former president of the city’s union representing white-collar workers, had been battling with the city and its pension system to restore the annual $86,000 pension she lost in 2007 after the Internal Revenue Service deemed it invalid.

At issue is the city’s past decision to allow labor leaders to include their union service toward their pensions as city employees. In Italiano’s case, she was able to combine her 22 years as head of the Municipal Employees Association — peaking at $114,000 annually — with her nine years as a city typist making about $17,000.

The IRS said the practice, called presidential leave, violated tax law because union leaders aren’t city employees and thus can’t receive credit for union work when it comes to a city pension.

Italiano sued the city and pension system for $1.8 million — the estimated value over time of her combined union-city pension — accusing officials of negligence and making false promises about how much she would have for retirement.

Judge Pressman ruled last month that the city didn’t properly approve the presidential leave benefit so it doesn’t owe Italiano anything but the smaller pension for her nine-year stint with the city.

While the case was still going on, pension and union officials were negotiating a settlement for Italiano. The pension board unanimously approved the deal in closed session Oct. 1 — 45 days before the judge ruled against Italiano.

“This court does not see this as a good faith settlement,” he wrote in a tentative ruling. “It is a settlement crafted to give judicial cover to an agreement based on prior illegal acts. This court is not inclined to grant that cover. If the parties choose, the settlement can go forward but without this court’s good faith determination.”

Mark Sullivan, board president for the San Diego City Employees’ Retirement System, said the city and pension system were sued by Italiano on different grounds and the judge’s ruling only cleared the city from damages. He said the board needed to limit its financial exposure by settling the lawsuit.

“The cost to defend ourselves in this action would be pretty close to the amount that we were seeking to settle and there’s no way we would be able to recover that,” he said. “Our goal is to minimize the impact to the trust fund.”

City Attorney Jan Goldsmith said it didn’t make any sense to agree to a settlement given the court’s decision.

“Once again, the pension board has overstepped its bounds,” he said. “Although the judge applied procedural standards, he made it absolutely clear that he is not inclined to grant ‘cover’ for this deal. We have other avenues to challenge the pension board’s side deal and will do so.”

Goldsmith declined further comment, saying he would seek City Council input before making any decision.

Italiano’s attorney, Ann Smith, did not return a call for comment.

Italiano, 64, won’t receive the entire $700,000 settlement. She owes the pension system $250,000 for overpayments she received in the first few years after she retired, a sum that will be subtracted from the settlement.

The remaining $450,000 will be used to purchase an annuity for Italiano that is expected to pay her nearly $28,000 annually for the rest of her life. The settlement also leaves Italiano eligible to receive taxpayer-funded health care in retirement, although it’s unclear if she is actually receiving the benefit.

Before the settlement, Italiano had a $480 monthly pension although she received nothing because the system used the money to pay down her outstanding debt. If the presidential leave benefit had been upheld, she would have received nearly $7,200 per month.

The settlement could fall through if the IRS raises any objections.

Italiano resigned from the union in May 2009 amid an internal investigation into her potential misuse of a union credit card. She repaid nearly $14,000.